The real estate market is a fundamental component of any financial system, especially in less-developed economies, such as those seen in various African countries. Hotel assets are classified under the real estate market and are gaining momentum as a strong investment option on the continent, with various large-scale hotel transactions taking place in key economic nodes, such as Lagos, Cape Town, and Johannesburg. For this reason, accurate and professional hotel valuations are required to ensure that the assets sell for the appropriate price depending on various factors, such as future cash flow projections, market trends, and unique selling points that enable a hotel to sell at a premium when compared to other assets in the market.
Banks and other institutional investors tend to provide large portions of debt to finance hotel transactions, and as such, they require detailed and market-related hotel valuations and due diligence studies to be conducted on the hotel asset to highlight the expected returns and any elements of risk associated with the hotel sale. Professional consulting firms, such as HTI Consulting, are often commissioned to provide such assistance and have undertaken several hotel valuations throughout Africa. Given HTI Consulting’s extensive experience at conducting hotel valuations, our firm is in a position to provide applicable benchmarks and industry insight into the trends currently seen when undertaking hotel valuations in Africa.
When compared to developed markets such as the UK, USA, and Europe, where extensive research and industry reports into hotel valuations have been conducted and are easily available within the public domain, insight into hotel valuations and various hotel valuation techniques commonly utilised in Africa are not as accessible. For this reason, investors investing in hotel assets in Africa tend to rely on the experience of firms such as HTI Consulting to provide benchmarks and market insight into similar/comparable hotel transactions through their experience of undertaking hotel valuations across the continent. HTI Consulting is therefore able to provide an in-depth understanding of various hotel markets in Africa, and this depth of knowledge is therefore highly sought after when undertaking hotel valuations in the region.
There are various techniques utilised when undertaking hotel valuations. The most commonly utilised, especially by HTI Consulting, is the income capitalisation approach. The income capitalisation approach is common when undertaking hotel valuations in Africa, as it looks at the hotel assets’ expected cash flows, the discount rate, and the terminal capitalisation rate, since these elements provide information for accurate hotel valuations.
Given the lack of available data on hotel asset transactions in Africa and the appropriate capitalisation rate to utilise, hotel valuations conducted by firms such as HTI Consulting are therefore required to provide industry benchmarks around hotel transactions and the value of this type of asset on the African continent.